April 29 (Reuters) - Shares of Maruti Suzuki India gained as much as 5.1% on Wednesday as investors looked past near-term margin pressures to bet on strong demand for its small cars and a brighter volume outlook.
The stock settled 2.8% higher and added 117.27 billion rupees ($1.24 billion) in market value.
It was the top boost on the auto index, which ended 1.2% higher.
India's top carmaker reported profit of 35.91 billion rupees ($379 million) for the quarter ended March 31 on Tuesday, missing analysts' estimates of 41.38 billion rupees.
The decline was driven by higher raw material costs and a sharp fall in other income, but the carmaker flagged strong demand momentum for its small cars despite mounting risks from the Iran war.
"Small cars account for about 130,000 of the 190,000 pending orders," Chairman RC Bhargava said.
The company also outlined plans to expand manufacturing capacity by about 500,000 units in the current fiscal year with an investment of $1.48 billion.
The stock rebounded from Tuesday's losses as analysts pointed to a strong order book, leaner dealer inventories and easing discounts as signs of resilient underlying demand.
While demand could soften in the coming quarters, consumer appetite was strong till March, reflected in low inventories, offering near-term support despite mounting cost pressures, said Gaurav Vangaal, an analyst at S&P Global Mobility.
CLSA described the results as "resilient amidst odds," saying Maruti managed to limit the impact of commodity inflation to around 80 basis points quarter-on-quarter through product mix improvements, tighter vendor management and lower discounts.
The carmaker also forecast about 10% volume growth in the current fiscal, which analysts said reinforced confidence in sustained demand.
Elara analysts said Maruti continues to expect buoyant demand, with its volumes expected to grow by 10% in fiscal 2027, and very limited impact of war on demand. However, macroeconomic factors with elevated commodity costs remain challenging, they said.
However, BofA Global Research struck a more cautionary note, warning that margin headwinds from elevated commodity prices and the commissioning of new capacity could persist.
"While volume growth looks achievable, margins remain a sore point for now," BofA said.
HSBC and Investec also flagged resilient demand but warned that margin pressures could cap near-term upside unless pricing action is taken.
Year-to-date, the stock is down 20.6% and remains the worst performer on the auto index, which is down 7.5%.
($1 = 94.8450 Indian rupees)
Reporting by Kashish Tandon and Pranav Kashyap in Bengaluru; Editing by Sumana Nandy
Source: Reuters